Central Bank Independence, Centralization of Wage Bargaining, Inflation and Unemployment - Theory and Evidence
This paper proposes a conceptual framework to investigate the effects of central bank independence, of the degree of centralization of wage bargaining and of the interaction between those institutional variables, on real wages, unemployment and inflation. The labour market is characterized by the degree of centralization of bargaining and by the degree of trade unions’ inflation aversion. The latter leads each union to moderate its wage demands in order to induce the Central Bank (CB) to inflate at a lower rate. An increase in the degree of centralization of wage bargaining (a decrease in the number of unions) triggers two opposite effects on real wages, unemployment and inflation. The decrease in the number of unions reduces the substituability between the labours of different unions and therefore the degree of effective competition between them. This ‘reduced competition effect’ raises real wages, unemployment and inflation. But the decrease in the number of unions also strengthens the moderating effect of inflationary fears on the real wage demands of each union. This ‘strategic effect’ lowers real wages, unemployment and inflation. The interaction between those two effects produces a Calmfors-Driffill type relation between real wages and centralization. The paper analyses the effects of centralization and of independence on the position and the shape of this Calmfors-Driffill relation, as well as on inflation and unemployment. Some of the resulting implications are tested empirically, using data from 19 developed economies. Implications for the optimal degree of conservativeness and for European Monetary Union (EMU) are also discussed.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Mar 1998|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1847. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.